What Trump means for Asian investors?

US President-elect Donald Trump gestures a thumbs up at the clubhouse of Trump International Golf Club, in Bedminster Township, New Jersey, USA, 20 November 2016. EPA/

In the lead-up to January 20 when Donald Trump becomes US president, Asians are guessing about the outlook for their savings.

Trump is particularly difficult to read because he made so many wild statements on the campaign trail. Everyone accepts that campaigning politicians promise heaven and deliver mostly hell, but when they win elections, most become much more sober. So far, it looks like Trump’s policy will follow his campaign threats.

The Trump presidency will be bi-polar – either highly successful if he reboots American dynamism, or one that may bankrupt the country trying, including getting involved in another war.
His rise to power has been accompanied by wild swings in investor mood as markets yo-yo from hesitation to rally, with the Dow currently peaking.

So far, Trump family members appear to have more clout than was the case with any previous , with perhaps the exception of President Bill Clinton.

Disappointingly, the favourite to be Trump’s treasury secretary is ex-Goldman Sachs banker Steven Mnuchin, which means Wall Street would have another insider running the status quo. It remains to be seen whether he can simultaneously deliver the promised spending on infrastructure, tax cuts for the rich and containment of effects of a stronger dollar.

All signs are that the dollar will strengthen, bringing echoes of the famous phrase, “my dollar, your problem”. In its latest health check on the US economy, the International Monetary Fund reported in June that “the current level of the US dollar is assessed to be overvalued by 10-20 per cent and the current account deficit is around 1.5-2 per cent larger than the level implied by medium term fundamentals and desirable policies”. The IMF thinks that the risk of the dollar surging in value is high, and estimates a 10 per cent appreciation would reduce American GDP by 0.5 per cent in the first year and 0.5-0.8 per cent in the second year.

Trump is likely to be highly expansionary in his first year because the Republicans, having control of the Congress, Senate and the White House, must revive growth and jobs to ensure voters give them a second term. Note carefully that Trump’s election promises of stopping immigration, scrapping the Trans-Pacific Partnership (TPP) trade deal, imposing sanctions on China and cancelling the North American Free Trade Agreement (NAFTA) are all inflationary in nature.

This is why if the Fed does not raise interest rates in December this year, it may be under pressure next year not to take any action to slow a Trump economic recovery. The Fed’s independence will be called into question, since Trump’s expansionary policy will put pressure on his budget deficit and national debt, already running at 3 per cent and 76 per cent of GDP respectively. A 1-per-cent increase in nominal interest rates would add roughly 0.7 per cent to the fiscal deficit, making it unsustainable in the long run.

Those who think that recovery in US growth would be good for trade are likely to be disappointed. So far, the recovery (which is stronger than in either Europe or Japan) has led to little increase in imports, due to three effects – lower oil prices, the increase in domestic shale oil production and more onshoring of manufacturing. The US current account deficit may worsen somewhat to around 4 per cent of GDP, but this will not improve unless sanctions are imposed on both China and Mexico, which would in turn hurt global trade.

Why is a strong dollar risky for the global economy?

The answer is that the global growth model would be too dependent on the US, while the other economies are still struggling. Europe used to be broadly balanced in terms of current account, but has moved to become a major surplus zone of around 3.4 per cent of GDP. Germany alone is running a current account surplus of 8.6 per cent of GDP in 2016, benefiting hugely from the weak euro.

Japan has moved back again to a current surplus of 3.7 per cent of GDP, but the yen remains weak at current levels of 107 to the dollar. I interpret the Bank of Japan’s QQE (qualitative and quantitative easing) as both a financial stability tool and also one aimed at ensuring that the capital outflows by Japanese funds would outweigh the inflows from foreigners punting on a yen appreciation.

The Bank of Japan’s unlimited buying of Japanese government bonds at fixed rates would put a cap on losses for pension and insurance funds holding long-term bonds if the yield curve were to steepen (bond prices fall when interest rates rise). Japanese pension and insurance funds have been large investors in US Treasuries and securities for the higher yield and possible currency appreciation.

In short, the capital outflow from Japan to the dollar is helpful to US-Japan relations. Prime Minister Shinzo Abe was the first foreign leader to call on Trump and likely dangled a carrot: Tokyo will fund Trump’s expansionary policies so long as Japan is allowed to re-arm.

From 2007 to 2015, US securities held by foreigners increased by $7.3 trillion to $17.1 trillion, bringing its gross amount to 94 per cent of GDP, official figures show. Japan already holds just under $2 trillion of US securities and, as a surplus saver, has lots of room to buy more.

The bottom line for Asia? Don’t expect great trade recovery from any US expansion. On the other hand, Asian investors will continue to buy US dollars on the prospects of higher interest rates and better recovery. This puts pressure on Asian exchange rates.

Of course, it’s possible that US fund managers will start investing back in Asia, but with trade sanctions and frosty relations between US-China in the short-term, US investors will stay home. If interest rates do go up in Asia in response to Fed rate increases, don’t expect the bond markets to improve. The equity outlook would depend on individual country responses to these global uncertainty threats.

In short, expect more Trump tantrums in financial markets.

 Think Asian By Andrew Sheng, a former central banker, writes on global issues from an Asian perspective.


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What Trump means for Asian investors?

US President-elect Donald Trump gestures a thumbs up at the clubhouse of Trump International Golf Club, in Bedminster Township, New Jersey, USA, 20 November 2016. EPA/

In the lead-up to January 20 when Donald Trump becomes US president, Asians are guessing about the outlook for their savings.

Trump is particularly difficult to read because he made so many wild statements on the campaign trail. Everyone accepts that campaigning politicians promise heaven and deliver mostly hell, but when they win elections, most become much more sober. So far, it looks like Trump’s policy will follow his campaign threats.

The Trump presidency will be bi-polar – either highly successful if he reboots American dynamism, or one that may bankrupt the country trying, including getting involved in another war.
His rise to power has been accompanied by wild swings in investor mood as markets yo-yo from hesitation to rally, with the Dow currently peaking.

So far, Trump family members appear to have more clout than was the case with any previous , with perhaps the exception of President Bill Clinton.

Disappointingly, the favourite to be Trump’s treasury secretary is ex-Goldman Sachs banker Steven Mnuchin, which means Wall Street would have another insider running the status quo. It remains to be seen whether he can simultaneously deliver the promised spending on infrastructure, tax cuts for the rich and containment of effects of a stronger dollar.

All signs are that the dollar will strengthen, bringing echoes of the famous phrase, “my dollar, your problem”. In its latest health check on the US economy, the International Monetary Fund reported in June that “the current level of the US dollar is assessed to be overvalued by 10-20 per cent and the current account deficit is around 1.5-2 per cent larger than the level implied by medium term fundamentals and desirable policies”. The IMF thinks that the risk of the dollar surging in value is high, and estimates a 10 per cent appreciation would reduce American GDP by 0.5 per cent in the first year and 0.5-0.8 per cent in the second year.

Trump is likely to be highly expansionary in his first year because the Republicans, having control of the Congress, Senate and the White House, must revive growth and jobs to ensure voters give them a second term. Note carefully that Trump’s election promises of stopping immigration, scrapping the Trans-Pacific Partnership (TPP) trade deal, imposing sanctions on China and cancelling the North American Free Trade Agreement (NAFTA) are all inflationary in nature.

This is why if the Fed does not raise interest rates in December this year, it may be under pressure next year not to take any action to slow a Trump economic recovery. The Fed’s independence will be called into question, since Trump’s expansionary policy will put pressure on his budget deficit and national debt, already running at 3 per cent and 76 per cent of GDP respectively. A 1-per-cent increase in nominal interest rates would add roughly 0.7 per cent to the fiscal deficit, making it unsustainable in the long run.

Those who think that recovery in US growth would be good for trade are likely to be disappointed. So far, the recovery (which is stronger than in either Europe or Japan) has led to little increase in imports, due to three effects – lower oil prices, the increase in domestic shale oil production and more onshoring of manufacturing. The US current account deficit may worsen somewhat to around 4 per cent of GDP, but this will not improve unless sanctions are imposed on both China and Mexico, which would in turn hurt global trade.

Why is a strong dollar risky for the global economy?

The answer is that the global growth model would be too dependent on the US, while the other economies are still struggling. Europe used to be broadly balanced in terms of current account, but has moved to become a major surplus zone of around 3.4 per cent of GDP. Germany alone is running a current account surplus of 8.6 per cent of GDP in 2016, benefiting hugely from the weak euro.

Japan has moved back again to a current surplus of 3.7 per cent of GDP, but the yen remains weak at current levels of 107 to the dollar. I interpret the Bank of Japan’s QQE (qualitative and quantitative easing) as both a financial stability tool and also one aimed at ensuring that the capital outflows by Japanese funds would outweigh the inflows from foreigners punting on a yen appreciation.

The Bank of Japan’s unlimited buying of Japanese government bonds at fixed rates would put a cap on losses for pension and insurance funds holding long-term bonds if the yield curve were to steepen (bond prices fall when interest rates rise). Japanese pension and insurance funds have been large investors in US Treasuries and securities for the higher yield and possible currency appreciation.

In short, the capital outflow from Japan to the dollar is helpful to US-Japan relations. Prime Minister Shinzo Abe was the first foreign leader to call on Trump and likely dangled a carrot: Tokyo will fund Trump’s expansionary policies so long as Japan is allowed to re-arm.

From 2007 to 2015, US securities held by foreigners increased by $7.3 trillion to $17.1 trillion, bringing its gross amount to 94 per cent of GDP, official figures show. Japan already holds just under $2 trillion of US securities and, as a surplus saver, has lots of room to buy more.

The bottom line for Asia? Don’t expect great trade recovery from any US expansion. On the other hand, Asian investors will continue to buy US dollars on the prospects of higher interest rates and better recovery. This puts pressure on Asian exchange rates.

Of course, it’s possible that US fund managers will start investing back in Asia, but with trade sanctions and frosty relations between US-China in the short-term, US investors will stay home. If interest rates do go up in Asia in response to Fed rate increases, don’t expect the bond markets to improve. The equity outlook would depend on individual country responses to these global uncertainty threats.

In short, expect more Trump tantrums in financial markets.

 Think Asian By Andrew Sheng, a former central banker, writes on global issues from an Asian perspective.


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Dealing with the new abnormal negative interest rate policies with exceptional high debt

Negative rates: ECB president Mario Draghi at the Brussels Economic Forum on Thursday. The ECB and Bank of Japan are already experimenting with negative interest rate policies. – Reuters

HOW can this be normal?

Twenty-nine countries with roughly 60% of the world’s GDP have monetary policy rates of less than 1% per annum. The world is awash with debt, with sovereign, corporate and household debt of over US$230 trillion or roughly three times world GDP.

To finance their large debt and deal with deflation, both the European Central Bank (ECB) and Bank of Japan are already experimenting with negative interest rate policies (NIRP). If these do not work, look out for helicopter money, which means central bank funding of even larger fiscal deficits.

Either way, at near zero interest rates, the business model of banks, insurers and fund managers are broken. Deutschebank’s CEO has recently warned that European bank profits will struggle more as negative interest rates play into deposit rates. No wonder bank shares are trading below book value.

The problem with the current economic analysis is that no one can ascertain whether exceptionally low interest is a symptom or a cause of deep chronic malaise. Exceptionally high debt burden can only be financed by exceptionally low interest rates. The Fed now feels confident enough to raise interest rates, which means that the US asset bubbles will begin to deflate, spelling trouble to those who borrow too much in US dollars, which would include a number of emerging markets.

As Nomura chief economist Richard Koo asserts, the world has followed Japan into a balance sheet recession, with the corporate sector refusing to invest and consumer/savers too worried about outcomes to spend. The solution to a balance sheet (imbalanced) story is to re-write the balance sheet, which most democratic government cannot do without a financial crisis. 

Like Japan, China’s dilemma is an internal debt issue of left hand owing the right hand, since both countries are net lenders to the world. This means that foreigners cannot trigger a crisis by withdrawing funds. The Chinese national balance sheet is also almost unique because the financial system is largely state-owned lending mostly (about two thirds) to state-owned enterprises or local governments. The Chinese household sector is also lowly geared, with most debt in residential mortgages and even these were bought (until recently) with relatively high equity cushions.

Unlike the US federal government which had a net liability of US$11 trillion or 67% of GDP at the end of 2013, the Chinese central government had net assets of US$4 trillion or 42% of GDP. Chinese local governments had net assets of a further US$11 trillion or 123% of GDP, compared to US local government net assets of 45% of GDP. Local governments hold more assets than central or federal government because most state land and buildings belong to provincial or local authorities.

Thus, unlike the US where households own 95% of net assets in the country, Chinese households own roughly half of national net assets, with the corporate sector (at least half of which is state-owned) owning roughly 30% and the state the balance. In total, the Chinese state owns roughly one-third of the net assets within the country, compared to net 4% for the US federal and state governments.

Sceptics would argue that Chinese statistics are overstated, but even if the Chinese state net assets are halved in value (because land valuation is complicated), there would be at least US$7.5 trillion of state net assets (net of liabilities) or 82% of GDP to deal with any contingencies.

Furthermore, unlike the Fed, ECB or Bank of Japan, the People’s Bank of China derives its monetary power mostly from very high levels of statutory reserves on the banking system, which is equivalent to forced savings to finance its foreign exchange reserves of US$3.2 trillion. Thus, the central bank has more room than other central banks to deal with domestic liquidity issues.

What can be done with this high level of state net assets, which is in essence public wealth? My crude estimate is that if the rate of return on such assets can be improved by 1% under professional management, GDP could be increased by at least 1.5 percentage points (1% on 165% of GDP of net state assets).

How can this re-writing of the balance sheet be achieved? There are two possibilities. One is to allow local governments to use their net assets to deleverage their own local government debt and their own state-owned enterprise debt. This could be achieved through professionally managed provincial level asset management/debt restructuring companies.

The second method is inject some of the state net assets into the national and provincial social security funds as a form of returning state assets to the public. People tend to forget that other than the painful restructuring of state-owned enterprises in the late 1990s, which led to the creation of China’s global supply chain, the single largest measure to create Chinese household wealth was the selling of residential property at below market prices to civil servants.

The size of the wealth transfer was never officially calculated, but it paved the way for boosting of domestic consumption by giving many households the beginnings of household security.

The injection of state assets into national and social security funds was not achieved in the 1990s, because the state of provincial social security fund accounting was not ready. But if China wants to boost domestic consumption and improve healthcare and social security, now is the time to use state assets to inject into such funds.

At the end of 2014, Chinese social security fund assets amounted to 4 trillion yuan, compared with central government net assets of 27 trillion yuan (Chinese Academy of Social Science data, 2015). Hence, the injection of state assets (including injection by provincial and local government) into social security funds as a form of stimulus to domestic consumption and more professional management of public wealth is clearly an affordable policy option.

In sum, at the individual borrower level, there is no doubt an ever increasing leverage ratio in China is not sustainable. But the big picture situation is manageable. If the policy objective is to improve overall productivity (and GDP growth) by improving the output of public assets, the timing is now.

By Tan Sri Andrew Sheng who is Distinguished Fellow, Asia Global Institute, University of Hong Kong.


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What the market is trying to tell investors?

Second catalyst: Cranes operate on residential buildings at a construction site in Beijing. China’s economic health is the second major concern that could spark off a crisis for Bursa and the world.

IN stock market language, when the charts point to a “dead cross” formation, it means that there is confirmation of a long-term bear market. This is as opposed to a “golden cross” that points to a bull market.

Based on weekly indicators emitting from Bursa Malaysia, a dead cross is coming to formation. The last time this pattern emerged was in the first quarter of 1997 and a year later, the “dead cross” chart was fully formed. By that time, the entire capital market was in flames.

The ringgit fell against the US dollar, banks were in trouble and the stock market hit a nadir of 261 points on Sept 4, 1998.

Technical indicators are no sure sign of market failure. It could change with sentiments. However, time and again it has been proven that the stock market runs six months ahead of what is to be expected in the real economy.

As for the nation’s economy, there is no denying that growth is slowing down. There are governance issues with regards to the handling of public funds.

However, the fact remains that for all the noise the foreign investors make, the Government did not have to pay a premium when it raised US$1.5bil debts a few weeks ago. This indicates that foreign investors have largely discounted local issues.

Nevertheless, the external headwinds are overwhelming and weigh heavy on the Malaysian economy.

It is already showing with the slew of corporate results streaming in. Companies are not doing well, as indicated by Tan Chong Motor Holdings Bhd chalking up its first loss in 18 years. Property developers that have made a pile from a great run in the last eight years are seeing miserable sales.

Malaysia is expected to see a growth of 4% this year, which is low for a small nation. Nonetheless, we are better off than some of our neighbours.

Everybody is cautious, but nobody is able to point a finger to the catalyst that could cause a severe correction to the stock market. Inevitably, it will stem from the economy – whether domestic or global.

There are several signs that have emerged which need some monitoring.

At the top of the list would be the price of oil that has a close correlation to the ringgit and the economy.

Ironically, when crude oil plunged below US$30 per barrel, the ringgit weakened significantly on the view that Malaysia was an exporter of energy and it impacted the country’s revenue.

However, in recent months, oil prices have recovered to about US$45 per barrel levels but the ringgit is continuing to see volatility. One reason is that the market is not convinced that crude oil will stabilise at current levels.

Conventional economic theory reasons that when oil prices fall, it should strengthen economic activity because the cost of doing business comes down. The International Monetary Fund estimates that for every US$20 drop in price per barrel of crude, the global economy should grow by 0.5%.

However, this is not happening because the major economic superpowers of the world are going through their own problems.

This points to China’s economic health, the second major concern that could spark off a crisis for Bursa and the world.

Nobody can authoritatively put a finger on the state of the debt levels of China, especially those held outside the financial sector. The latest figure being bandied about is that the non-financial sector debt is 279% of gross domestic product, according to data from the Bank of International Settlement.

However, the optimists contend that China’s strong growth supports borrowing. Also, the country is seeing high inflation, which in the longer term will cause debt to erode. In the process of growing the economy, China has adopted an approach to weakening the yuan to export its way out. Every time the yuan weakens, the ringgit falls.

The third indicator is the highly likely scenario of the US raising interest rates in the second half of the year from the current band of between 0.25% and 0.5%. It is a measure which, if materialises, will exert pressure on the ringgit.

The headline numbers show that the US economy is still in the stage of recovery. The unemployment rate in the world’s biggest economy has ticked up slightly to 5% from 4.9% previously based on April numbers, but wage rates are still steady, meaning people are still getting paid well.

People’s earnings are growing at an estimated 2.5% based on latest numbers, which means that inflation will kick in.

At the moment the possibility of the US Federal Reserve raising interest rates will not likely happen in the next month or so but there is a strong possibility may happen by the year-end as inflation starts to tick up. This would cause an outflow of funds from emerging economies such as Malaysia and the ringgit would come under pressure.

The fourth catalyst is also tied to the US. This time, it is the fear of Donald Trump becoming the next president. Trump prefers a strong dollar and has hinted of a haircut for those holding US dollar debt papers.

Although Trump has come out to state that he was misquoted on the US dollar debt paper issue, it has spooked investors holding US$14 trillion of US debt papers.

The markets will also watch with anxiety on how Trump deals with policies of other countries such as China, Japan and the European Union (EU) in weakening their currencies to boost the economy.

As the run-up to the presidential elections takes place in November this year, if it becomes increasingly apparent that Trump will triumph over Hillary Clinton, then emerging markets will be spooked.

And finally, the last possible catalyst to cause a global shock is the possibility of Britain leaving the EU or better known as Brexit. Increasingly, the chances of it happening are remote. Nevertheless, nobody can tell for sure until the referendum on June 23.

All the five economic events will have a bearing on the ringgit. Everything points to the US dollar appreciating in the future, leaving the ringgit in defensive mode.

This is already being reflected in the negative mood of the stock market. If there is less noise in the domestic economy on such matters relating to the handling of public funds to governance, it would help the case for the ringgit.

The market is generally correct in predicting the future. But sometimes, the unexpected can happen – such as China handling its debt problems better than expected or Trump not being a candidate for the Republicans.

Such unexpected incidences can quickly reverse the sentiments of the market and the ringgit.

By M. Shanmugam The alternative view The Star

Go to Market Watch

 http://www.thestar.com.my/business/marketwatch/

BMKLCI

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Lessons from Penang affordable housing

AS we all know, affordable housing is the saving grace for the middle to low income group in our common dream to pursue the “roof over our heads”.

Most often, aspiring homebuyers are sandwiched between increasing property price and developers’ tendency to build high-end apartments especially in greater KL for the last decade.

The introduction of PR1MA and other affordable housing agencies by the federal government is aimed at addressing this gap and to promote better home ownership as part of the prime minister’s national transformation programme. Nonetheless, not many realised that affordable housing is also a state initiative whereby state governments are free to introduce affordable housing schemes given that land and development are within the exclusive power of the state under the Federal Constitution. For instance, Penang is fully behind the notion of affordable housing by placing their top priority on increasing homeownership ratio within the state.

Checking online, there are currently 29 affordable housing projects in Penang with 12 being developed by the state government and the other 17 by the private sector. Penang is delivering a commendable amount of affordable housing by trading plot ratio of built-up area in exchange for more units to be built.

The state government is constantly reviewing and updating the criteria for the purchase of affordable housing in Penang. A person who already owns a property can still purchase affordable housing in Penang provided the person can satisfy the conditions imposed.

For example, the house to be purchased must be of higher value than the one already owned.

In addition, for those who are not born in Penang, under the talented and skilled category, they may also purchase affordable housing in Penang provided they undertake to reside there for a minimum of five years. In short, affordable has become a driver for talent retention. This ultimately helps to upgrade living standard in Penang.

On the flip side, Penang has uncovered a problem. Those who are entitled to affordable housing may not qualify for financing, especially those from the lower income group as they are considered as high risk by banks.

Job and income security at this level are extremely vulnerable given the high cost of living that in effect reduces disposal income. Bank and financial institution are after all profit-making entities. Loan disbursements below a certain threshold amount does not always generate their desire margin. Many expiring home owners are left helpless.

While nothing is perfect, one can only achieve success through lessons learned along the way and from history. The federal government is aware of the high loan rejection rate. It has, therefore, provided a 10% loan guarantee and First House Deposit Financing to help purchasers with their downpayments. The “Rent to Own” scheme was also introduced to circumvent the stricter loan financing situation.

Penang has introduced a similar Rent to Own scheme. Under this scheme, the state government provides 30% of the home price so that the house buyer can seek a 70% loan margin.

PR1MA, on the other hand, is facing difficulties finding suitable land as land is state matter. There is also a tendency for the state government to allocate land for this purpose in areas they want to urbanise, but which are often far from amenities and transportation links.

We all know that to develop affordable housing is not the best commercial decision to make because profit margins are definitely lower. As such, we cannot expect private sector developers to always bear the cost.

Penang, on the other hand, is able to overcome this problem by reducing the development charges via an increase in plot ratio. This then attracts private sector developers to come in.

A recent survey conducted by PR1MA shows that buyers prefer to purchase residential projects close to schools, clinics and shops. They also prefer access to transportation. Penang is closer to achieving its objective in the affordable housing arena because it “focuses on the homeowners”.

Under the recently announced Penang Transport Master Plan, the state government is mulling over RM8bil worth of projects that will enhance connectivity.

The development of an underground tunnel from Gurney Drive to Bagan Ajam, Gurney Drive to Jelutong Expressway and an alternative road connecting Gurney Drive right up to Batu Feringhi will really improve connectivity.

Penang is ambitious in executing its affordable housing plans. It is also spot-on when it comes to addressing the different issues connected with this subject.

The banking sector must buy into it. Banking and financial institutions are governed by the fiscal policy of the federal government. Maybe some mandatory quota or corporate social responsibility initiatives can be imposed on banks to provide loans to deserving house buyers. So it is timely that Bank Negara has called for a comprehensive and carefully designed National Planning Policy to support the Government’s aim in delivering more social housing in its recently released annual report.

By Chris Tan

Chris Tan is the founder and managing partner of Chur Associates.

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Ng (right) handing over a mock cheque to Jamaliatul Shahriah bt Jamaluddin, the project creator for YAKEEN Honey Booster after a successful round of funding on the platform.

CROWDFUNDING has gained a strong following as an alternative funding option over the past few years. Small businesses that have not been able to secure conventional financing are looking more and more towards the practice as a source of financing.

However, the level of awareness and interest in crowdfunding in Malaysia is still at its infancy stage, noted Fundaztic.com chief executive officer Kristine Ng.

“Maybe about one in 20 people have heard of the concept and understand exactly how it works. There are currently just a handful of noted platforms in the market. Some local companies try to raise funds on international platforms such as Indiegogo.com.

“There is still a lot more which local players need to do to gain the credibility and recognition to grow further. And having the support from the local community would be a great boost for us,” she said.

Fundaztic, which rolled out in June this year, is among the handful of local crowdfunding players in the market. The platform was founded by a group of ex-bankers and a lawyer who have been following the development of financial technology (FinTech).

The potential of crowdfunding as an alternative funding platform is huge, said Ng, because access to funds has always been an issue, especially for new businesses and new business sectors that are viable but yet to have proven track-records.

Furthermore, Malaysians tend to be generally cautious when it comes to adopting new technology. Additionally, having to overcome the hurdle of building confidence in the credibility of the platforms would take a lot of time and effort for crowdfunding to be a significant part of the funding scene here.

Fundaztic has listed eight projects on its platform so far, with four projects currently in active funding stage.

But crowdfunding has taken the world by storm in the western countries and established strong platforms such as Kickstarter.com and Indiegogo.com that have helped many entrepreneurs bring their dreams and aspirations to life. Reports have even noted the possibility that the crowdfunding industry could account for more funding than venture capital (VC) in 2016.

A recent report by Massolution said global crowdfunding is set to raise US$34.4bil for 2015. In comparison, the VC industry invests an average of US$30bil each year.

“We truly believe that crowdfunding is a proven platform for like-minded people to support each other, and epitomises the meaning of ‘people power’ in an extremely positive manner,” Ng said. Fundaztic has listed eight projects on its platform so far, with four projects currently in active funding stage.

“We are happy that two of the projects are over-funded and have helped the project creators, who are both women and homegrown entrepreneurs, to grow their business in a risk free manner.

“This is the strongest benefit of crowdfunding. Entrepreneurs can leverage on the platform to gauge the level of public acceptance and support towards their products before having to splash out the funds on their own to commercialise a product or to stock up on inventory,” said Ng.

Funding on Fundaztic is through the concept of cornerstone funding whereby projects that are not able to meet its funding goal but have managed to generate at least 80% of the required funding, can get a maximum of 20% of the required funds from Fundaztic itself.

“Because we truly want all projects to be successful, we would be more than willing to hand-hold in the curation of the project so that the message will sink in well with the local community and thus, enjoy a higher degree of success,” Ng concluded. - The Starbiz

Entrepreneurs Slow to Market Via Equity Crowdfunding Platforms



Brian Gallagher, CEO of United Way Worldwide, talks about the rise of Giving Tuesday and the latest trend in charitable

Equity crowdfunding platforms are providing a new and innovative way to  raise money from angel investors that centralizes, streamlines, simplifies and shortens the fundraising process. Equity crowdfunding pools money from a group of investors via internet platforms, using social media and other types of marketing.

You might be surprised to learn that entrepreneurs, who are known for innovating in their products and services, are not innovating when it comes to the way they raise money. And  angel investors, who put money into innovations, are not innovating in the way they invest. Few entrepreneurs are marketing their securities offerings to angels online via crowdfunding.

That’s unfortunate, since angel investors provide about half as much financing as venture capitalists: $24 billion compared to $48 billion, according to the Center for Venture Research and MoneyTree, respectively. Angels, defined here as accredited investors who earn $200,000 annually (or $300,000 as a couple), or have a net worth, excluding their homes, in excess of $1 million, are more likely than VCs to focus on  seed and early-stage companies.

The State of Private Companies Publicly Raising Financing

This new public-facing financing method became possible on September 23, 2013, when the SEC put into effect the rules and regulations that allow private companies to advertise their securities offerings to angel investors. Previously, public solicitation was prohibited. Entrepreneurs now can market their securities offerings through websites such as AngelList, CircleUp, Crowdfunder and Portfolia.

Yet surprisingly few companies choose to seek funding publicly. Last year, 382,000 companies sought to raise money from angels in the real world. Fewer than 100 companies were added to those already trying to do so in the online world between January 1 and June 30, 2015, according to Crowdnetic, which aggregates data from 18 equity crowdfunding platforms.

The reality is that concerns about a new way of doing business often hold back adoption. I tackle these concerns in 6 Common Misconceptions About Equity Crowdfunding. The good news is that entrepreneurs who are embracing public-facing financing are blazing the trail, and best practices are emerging. I’ve written about some of those practices in How to Ensure a Successful Crowdfunding Campaign and in Stand Out In the Crowd: How Women (and Men) Benefit From Equity Crowdfunding

Women Entrepreneurs and Equity Crowdfunding: A Gap and Great Potential

Raising money via equity crowdfunding platforms has the potential to level the playing field for anyone raising money, but its impact may be greatest on underrepresented groups—such as women—who lag even further in taking advantage of this new approach. Women entrepreneurs are twice as likely to seek money offline from angels (36%) than publicly online (18%), according to the Center for Venture Research and Crowdnetic.

The average amount raised via crowdfunding is rising for companies in general ($412,000 as of the end of 2014 to $432,000 as of June 30, 2015) and falling for women-led companies ($331,000 as of the end of 2014 to $323,000 as of June 30, 2015).

This gap highlights tremendous potential. “The Kauffman Foundation reports that women build capital-efficient companies, generating 12% more revenue on one third less capital,” according to Kay Koplovitz, chairman and co-founder of Springboard Enterprises, an accelerator for women-led businesses in technology, media and life sciences. “[Think] how much more productive they could be if they raised capital on a par with men!”

Types of Securities Used

You may wonder what types of securities other entrepreneurs use when raising money. A majority (58%) issue stock as their method of financing. Nearly one third of entrepreneurs choose  convertible note, which allows them not to set an equity valuation at the time of the investment or to simply pay back the money within a set period of time prior to taking in permanent equity capital.

There are other financing structure options, such as revenue sharing or royalty agreements, but these are far less likely to be used. Depending on your long-term goal for the company, a securities lawyer can  advise you on which is the right form for you..

Top Locations for Equity Crowdfunding

It’s no surprise that the top location for equity crowdfunding activity and deals is the San Francisco/Silicon Valley area, both for entrepreneurs in general and for women-led companies in particular.

Over the past few decades, this area has developed a strong culture of entrepreneurship. It takes a village to build a growth company and to provide the ancillary support that makes growth possible. San Francisco/Silicon Valley has a long tradition of assisting high-potential entrepreneurs, not just with capital but with expertise and connections to customers, talent and vendors.

New York City is in second place. Worth noting are the high performance of relatively small cities such as Austin and Las Vegas, which rank among the top ten cities for raising money publicly online.

Other Signs That Equity Crowdfunding Is Gaining Credibility

Venture capitalists recognize the potential of crowdfunding and have invested in these platforms to the tune of $250 million in 2014, according to Massolution’s 2015CF Crowdfunding Industry Report. Big-name companies such as Coca-Cola, Nike, General Mills and Chrysler use crowdfunding platforms not to raise money but to gain insights into consumers.

Source: http://quickbooks.intuit.com/


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